November Market Brief

by Christopher M. Quigley, B.Sc., M.M.I.I., M.A., WealthBuilder.ie | November 3, 2008

The American economy continues to contract. Construction levels are declining. Building permits, which are a gauge of future activity, fell to 786,000 in September from 857,000 in August. In September industrial production suffered its biggest decline since the recession of 1974-5. This broad based weakness suggests that the recession will be deep.

As mentioned last month we would like to see the Dow Industrial Index consolidate solidly at the 7500 range. The Bull/Bear battle continues to wage but if this level is grounded and tested over the next two to three months it would go a long way towards setting up the modalities required for a change in market psychology. While near we are not there yet. Volatility will continue.

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In Europe the banking fallout continues to cause havoc throughout the Euro block, the emerging eastern markets and Russia. The fact that the European Commission's formula for putting together a pool of funds was rejected may indicate that the federal concept of the European Union may be well and truly dead in the water. What saved England, Germany and Ireland was intelligent and aggressive national action. This indicates that international socialism has not yet totally replaced the Nation State as the model for economic success. Ideology does not pay bills, grounded value through work exchanged does. I would suggest that the new zeitgeist senses the weakness in the old global "conceptual" business model and smart people now know that national physical resources coupled with an educated and creative populace, producing real value is the way forward in an increasingly competitive world. The era of phony financial "wealth" is over. So too is the era of "Basel Leverage", as is the suicidal mentality that an economy paying 20 dollars an hour to its citizens should offer up its manifest destiny to a centralist "society" paying 20 cents an hour. Once the reality sinks in that the true backing for the American dollar is the American people, their creativity, their work ethic and resources and brilliance in devising methods of exchange, then the political landscape moving forward will alter. With growing foreign political instability repatriation of funds will become a massive wave, with the American dollar benefiting. Protectionism is going to grow with a possible collapse of the Chinese economy a distinct possibility. The Wal-Mart model of doing business is going to come under pressure. The American people are finding new voice and voting with their dollars every day, as propounded by E.C. Riegel, rather than relying on the power of a vote every four years.

With the Presidential elections in the mix I would suggest that you have your powder available and ready for use. The market is so oversold that even if the bear is still vigorous there should be good market reaction to allow bulls to benefit. Again to reiterate the point if the market does not respond favourable after November, and breaks below the 7500 level, the 2009 recession will not have been properly priced into the market. A technical breakdown at this price point, which I think is probable, could bring the Dow Industrials down substantially further. Under such a juncture the Dow level of 1987 will be the next technical support target and this consciousness will place the market in the 6500 ball park area. Such a view works well with the fundamental fact that PE ratios are currently far too high for a protracted recessionary environment, even with the juiced inflation numbers which distorts sales numbers higher, but only nominally. Reality is beginning to bite which means folk are beginning to see through the hype.

However there is one issue which could completely alter the market reality. If the new administration successfully motivates the S.E.C. to regulate naked short selling, and review off-shore hedge fund activity, the true bear pressure caused to the market by this negative phenomenon may be finally released.

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Contact Information

Christopher M. Quigley, B.Sc., M.M.I.I., M.A. | Wealth Builder | Dublin, Ireland | Email